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The IPO (Initial Public Offering) market has been in the rally mode, and it looks like the momentum will continue. Just last week, Airbnb filed for its own offering. Yet, there is something to note about IPOs: they usually do not hit the markets until five to ten years after the companies were founded. Thus, by the time of the offering, the considerable gains have already gone to the early investors, such as angels and VCs (venture capitalists). Kind of unfair, huh? I think so. However, to deal with this, Congress passed the Jobs Act in 2012 to democratize investments in startups. And the result has been the emergence of a variety of equity crowdfunding sites.
If you don’t know much about them, these types of platforms are kind of like eBay (NASDAQ:EBAY). You setup an account and provide some of your financial information (such as for your bank account or credit card). You will then review different deals and make your investments.
However, these equity crowdfunding sites still may have some restrictions. For larger deals, you will need to be an accredited investor. This means you have earned more than $200,000 in income for the past two years ($300,000 for joint income). Or, you have a net worth of over $1 million (this excludes your primary residence).
So, what are some of the top equity crowdfunding sites? Here’s a few to take a look at in the space:
- Republic
- SeedInvest
- Crowdfunder
- MicroVentures
- WeFunder
Let’s dive in!
Top Equity Crowdfunding Sites: Republic
Republic has more than 500,000 users and they have invested in over $100 million since the company’s inception. In fact, the COVID-19 pandemic has actually led to an acceleration of the growth, as businesses have looked for alternative financing. From March to April, the site logged a 42% jump in investments.
CEO and cofounder Kendrick Nguyen is an immigrant from Vietnam and a securities attorney. Overall, his vision is to allow any entrepreneur to get an edge.
Moreover, the Republic site has a wide assortment of diverse companies. In fact, part of this has been through acquisitions. For example, the company purchased Sheworx, which is a global platform and event series specifically for entrepreneurial women.
Republic has also expanded into other asset categories, as well. And to this end, it has launched a real estate platform, as well as one for blockchain.
Regarding the equity crowdfunding part of the business, Republic has an extensive vetting process. In turn,this is definitely important for investors since early-stage deals are quite risky.
And so, for these reasons, consider Republic a top equity crowdfunding option.
SeedInvest
SeedInvest is one of the pioneers in allowing anyone to invest in early-stage companies. The platform has more than 300,000 investors — and, since inception, there have been more than 200 companies that have received funding.
Now, SeedInvest is not about just listing tons of deals. In fact, the company has strict criteria and accepts only about 1% of submissions. But this does not imply that you can avoid doing your own due diligence. No doubt, it is still important to read through the investment materials.
For an investment, SeedInvest will charge a 2% processing fee that is capped at $300. However, this is refunded if the company does not raise the minimum amount of capital.
Top Equity Crowdfunding Sites: Crowdfunder
Crowdfunder has roughly 200,000 members, with the total amount raised over $160 million. That said, the average investment size is about $1.8 million. Because of this relatively large deal amount, the platform only accepts accredited investors.
Also, in terms of the deals available on the platform, they tend to have a technology focus. Here are just some of them:
- Digitzs: The company operates a payments service for rents, tickets for festivals and donations to non-profits.
- Real Estate Nexus: This is real estate software to help increase the speed and effectiveness of closing sales leads.
- TALYX: This is a digital marketplace for sweepstakes of luxury items. The contributions are also donated to charities.
Investors can invest in individual deals or participate in an index fund, so as to get portfolio diversification (which can be critical because of the high risks).
What’s more, the transaction payments are handled directly between the investor and the company. The company will provide the investment documents and instructions (such as for how to wire the funds).
MicroVentures
When capital dried up during the financial crisis in 2008, Bill Clark stepped in to help out. He created MicroVentures to provide capital to small business. Before starting this venture, he had a successful career as a credit manager for companies like Dell (NYSE:DELL), PayPal (NASDAQ:PYPL) and GMAC.
As of now, MicroVentures is one of the leaders in the crowdfunding space. There are over 110,000 investors who have funded more than 400 companies for over $220 million. To invest in a MicroVentures deal, the minimum is $100. You can pay with a credit card, bank account or wire transfer.
Note that Microventures has had access to marquee deals. This is primarily because it allows for secondary trading (this means you can buy shares in a startup from other holders, say employees). Some of the examples of the listings include Airbnb, Robinhood and Palantir.
Top Equity Crowdfunding Sites: WeFunder
According to the CEO and founder of WeFunder, Nick Tommarello, “I started Wefunder because I wanted to invest in my friends — to help them dream bigger, be the best versions of themselves, and reach their ambition. Seven years later, we do that for the rest of America.”
He has certainly done a great job in realizing his vision. His platform has funded more than $140 million in investments. And, actually, a large amount of this has been available for any investors.
Collectively, the average deal raises about $300,000. And some examples include ThisWay Global (an AI-based human resources system) and Kiwibot (a robot that makes deliveries).
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks
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